With the new administration, the time has come for safe, inclusive financial innovation

By Gilles Gade, Founder and CEO of Cross River

With the 2024 presidential election outcome, we stand at a crucial crossroads to fundamentally change outdated regulatory models that hinder America’s fintechs and financial innovation and shift toward a balanced, forward-thinking regulatory approach that benefits everyone—from consumers to small businesses to the broader American economy.

The incoming administration should encourage and foster responsible innovation and protect consumers by bringing industry expertise to the table. This includes prioritizing leaders who genuinely understand fintech’s potential, its unique demands on regulatory frameworks, and consumer demand and protection.

For more than a decade, the fintech sector in the United States has been a force for transformative, responsible innovation, expanding access to financial services in ways that traditional banking has long overlooked or ignored. Yet, regulators have struggled to appreciate and keep pace with rapid advances in technology and have instead stifled innovation through application and enforcement of outdated policies.

In some cases, the regulatory approach has been so aggressive that banking and fintech entities have exited consumer products and services, and even outright abandoned the fintech business model and bank-fintech partnerships in general. It is questionable what, if any, benefits for consumers this aggressive regulatory posture has yielded over the past few years. Yet one thing is certain and free from doubt - this regulatory approach has reduced consumer choice, eliminated some consumer opportunities, and shrunk the pool of eligible borrowers who were already unable to obtain services from traditional banking channels.

We simply cannot allow the status quo to continue. Another four years of this regulatory approach would significantly handicap American consumers and hinder our nation’s economic growth. That is why the incoming administration must embrace a collaborative approach, working directly with those of us who have led responsible fintech development. Together, through a multi-step plan in partnership with industry and government, we can craft smart, consumer-first policies that reflect the realities of today’s landscape and keep bad actors in check while providing tools for the U.S. economy to grow.

The first step forward is selecting knowledgeable, apolitical, open-minded and well-rounded experts to lead the markets and banking regulatory agencies on a path to responsible innovation.

The second step is the establishment of a dedicated fintech working group, one that brings together industry leaders and regulatory agencies to address urgent priorities—from fair and consistent examination standards to emerging technologies.

The third step is modernizing the examination and enforcement practices to acknowledge the adoption of innovation and technology. The complex, evolving world of fintech demands not only vigilant oversight but informed and flexible guidance that reflects (and can be adapted to) current and future economic conditions, not those of a regulatory framework designed generations ago.

The fourth step is the modernization of the agencies themselves. Nothing should be off-the-table for revisiting how regulatory agencies are organized, staffed, and managed. There is a real grass roots effort by field examiners to truly understand the complexities and intricacies of the bank-fintech partnerships. These examiners work hard but often they don’t have a voice, or at times their work is scrutinized in the headquarters. Such individuals should be rewarded and applauded, not silenced by the system within which they operate. Let’s turn the pyramid upside down and give those closer to understanding the problems, help bring the solutions.

The fifth step is better alignment between states and the Federal government to establish clear guidelines around key banking topics, including but not limited to usury caps, true lender treatment, data protection regimes, and open banking practices, etc.

Finally, we must have an open and honest discussion around emerging technologies. As we collectively begin to embrace the incredible ascension of artificial intelligence (AI), it is clear that the potential for innovation is vast, but so are the challenges for regulation. When leveraged responsibly, AI can dramatically improve compliance practices, for example, in areas such as fair lending and anti-money laundering (AML) compliance. ?

Similarly, crypto and blockchain—initially thought of as solely speculative trading instruments—eventually developed a foothold within the larger financial ecosystem with tangible real-world use cases, yet they remain largely unregulated or regulated in a draconian way, often led by regulation through an enforcement approach.

The path forward is one where all industry stakeholders collaborate, engage in open, ongoing dialogue, with real-time working groups to address the complexities and potential of evolving technologies. This isn’t about giving fintech a free pass; it’s about acknowledging that an industry advancing at today’s pace requires modern, flexible policies designed to keep up.? American consumers will benefit from that as will the broader economy.